WHISTLEBLOWING IS THE MOST EFFECTIVE WAY TO STOP WRONGDOING

Five separate studies show whistleblowing is the most effective way of identifying wrongdoing in organisations. One of the more significant of these studies was undertaken for the Commonwealth public sector in Australia. This research demonstrated that senior managers and staff responsible for managing ethical behaviour in public agencies believe that whistleblowing is the most useful way to identify and stop wrongdoing. The research project comprised nine surveys across the public service, the largest of which sent out 23,177 questionnaires to public servants in 118 agencies, to which 7663 public servants responded. The research was organised by fourteen state and federal government ombudsman and anti-corruption agencies, along with five universities (Brown, AJ, 2008).

The conclusion of the Australian research is backed up by a number of surveys conducted by the big accounting companies. A  survey sent in 2006 to 2,146 of Australia’s and New Zealand’s largest public and private sector organisations by KPMG found that 43% of wrongdoing is reported by employees or related parties, as opposed to being identified by internal controls (38%) and audits (7%)  (KPMG, 2006).  Its 2008 survey, however, found that internal controls were more effective (KPMG, 2008). Both studies equate whistleblowing, including anonymous whistleblowing” with the detection of fraud. KPMG stated in its opening summary that it “believes anonymous reporting systems are crucial to the detection of fraud, particularly when whistleblowers are concerned about retribution should their identity become known”. This author agrees with the KPMG statement.

PricewaterhouseCoopers’ 2009 survey on economic crime also found that whistleblowers were the highest source for identification of internal wrongdoing. Its 2009 survey, based on interviews in over 3,000 organisations in 54 countries, found that internal and external tip-offs identified 27% of fraud in organisations. With 7 % of the reporting coming from formal internal whistleblower systems, people willing to identify wrongdoing provided 34% of the total.   Internal audit provided 17%, and fraud risk management procedures 14%.  13% were discovered accidentally. Government enterprises were the most severely affected (PWC, 2009).

Researchers at the Chicago School of Business and the University of Toronto drew up a "top ten" list of the most active fraud detectors. The study analysed 230 cases of alleged corporate fraud in U.S companies between 1996 and 2004. Topping the list of fraud detectors were employees (Dyck, Morse and Zingales, 2007). Finally, the Certified Fraud Examiners Association of the US, in their 2004 and 2006 annual conferences, presented evidence that internal whistleblowers were the dominant source of exposing fraud (Durant, 2004; CFEA, 2006).

The term fraud encompasses fraud by senior staff acting to benefit the company, as well as by individual employees within it acting in their own interests. The former is wrongdoing that is against the public interest. The latter includes employees using company resources for their own benefit, for example, theft, false expenditure claims, etc.  The studies cited above include both types of wrongdoing. The Dyck reference, for example, was an examination of large US companies that included Enron and Tyco, both of which acted against the public good.  The PWC survey is also mainly focussed on fraud against the organisation, although it does include bribery as an example of fraud. Its 2007 report also discusses the benefits of internal whistleblowing systems.  The KPMG survey has a similar emphasis on fraud against the organisation, such as internal theft, although again it discusses wrongdoing, at various managerial levels, that is not in the public interest.

Whatever the type of wrongdoing, the results do indicate that a substantial number of people will expose dishonest actions in an organisation.

References

Bowden, Peter (2006). “A comparative analysis of whistleblower protections” Australian Journal of Professional and Applied Ethics, Vol 8, No.2.   

Brown A.J. (editor), (2008). Whistleblowing in the Australian Public Sector. Enhancing the Theory and Practice of Internal Witness Management in Public Sector Organisations, Australian National University E Press, Canberra.  Downloadable from http://epress.anu.edu.au/

 CFEA. Certified Fraud Examiners Association. (2006). Report to the Nation on Occupational Fraud.

Dyck, Alexander, Morse, Adair and Zingales, Luigi; Who Blows the Whistle on Corporate Fraud ?, NBER working paper series  no. w12882. Cambridge, Mass. National Bureau of Economic Research, 2007.

http://www.nber.org/papers/w12882

KPMG (2006). Fraud Survey, 2006. Accessed 10 August, 2010 http://www.kpmg.com.au/Portals/0/FraudSurvey%2006%20WP(web).pdf

 KPMG (2008).  Fraud Survey, 2008.  Accessed 10 August, 2010.

http://www.kpmg.com/NZ/EN/ISSUESANDINSIGHTS/ARTICLESPUBLICATIONS/Pages/Fraud-Survey-2008.asp

 PWC Global economic crime survey 2009, Accessible at  http://www.pwc.com/gx/en/economic-crime-survey

 Taxpayers against fraud (2009) http://www.taf.org/statistics.htm  Accessed, March 2010